UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ________

Commission File Number 001-38412

BRIDGEWATER BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Minnesota (State or other jurisdiction of incorporation or organization)	26-0113412 (I.R.S. Employer Identification No.)
4450 Excelsior Boulevard, Suite 100 St. Louis Park, Minnesota (Address of principal executive offices)	55416 (Zip Code)

(952) 893-6868

(Registrant’s telephone number, including area code)

. Securities registered pursuant to Section 12(b) of the Act:

Title of each class:		Trading Symbol	Name of each exchange on which registered:
Common Stock, $0.01 Par Value		BWB	The Nasdaq Stock Market LLC
Depositary Shares, each representing a 1/100th interest in a share of 5.875% Non-Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share		BWBBP	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
	Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the Common Stock outstanding as of August 1, 2022 was 27,579,984.

Table of Contents

PART I FINANCIAL INFORMATION	3
Item 1. Consolidated Financial Statements (unaudited)	3
Consolidated Balance Sheets	3
Consolidated Statements of Income	4
Consolidated Statements of Comprehensive Income	5
Consolidated Statements of Shareholders’ Equity	6
Consolidated Statements of Cash Flows	7
Notes to Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3. Quantitative and Qualitative Disclosures About Market Risk	61
Item 4. Controls and Procedures	63
PART II OTHER INFORMATION	64
Item 1. Legal Proceedings	64
Item 1A. Risk Factors	64
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	65
Item 3. Defaults Upon Senior Securities	65
Item 4. Mine Safety Disclosures	65
Item 5. Other Information	66
Item 6. Exhibits	66
SIGNATURES	67

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PART 1 – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Balance Sheets

(dollars in thousands, except share data)

	June 30,		December 31,
	2022		2021
	(Unaudited)
ASSETS
Cash and Cash Equivalents	$	73,517	$	143,473
Bank-Owned Certificates of Deposit		1,138		1,876
Securities Available for Sale, at Fair Value		482,583		439,362
Loans, Net of Allowance for Loan Losses of $44,711 at June 30, 2022 (unaudited) and $40,020 at December 31, 2021		3,171,638		2,769,917
Federal Home Loan Bank (FHLB) Stock, at Cost		9,921		5,242
Premises and Equipment, Net		49,294		49,395
Accrued Interest		10,010		9,186
Goodwill		2,626		2,626
Other Intangible Assets, Net		383		479
Other Assets		82,154		56,103
Total Assets	$	3,883,264	$	3,477,659
LIABILITIES AND EQUITY
LIABILITIES
Deposits:
Noninterest Bearing	$	961,998	$	875,084
Interest Bearing		2,239,955		2,071,153
Total Deposits		3,201,953		2,946,237
Federal Funds Purchased		86,000		—
FHLB Advances		56,500		42,500
Subordinated Debentures, Net of Issuance Costs		92,459		92,239
Accrued Interest Payable		1,393		1,409
Other Liabilities		70,076		16,002
Total Liabilities		3,508,381		3,098,387
SHAREHOLDERS' EQUITY
Preferred Stock- $0.01 par value; Authorized 10,000,000
Preferred Stock - Issued and Outstanding 27,600 Series A shares ($2,500 liquidation preference) at June 30, 2022 (unaudited) and December 31, 2021		66,514		66,514
Common Stock- $0.01 par value; Authorized 75,000,000
Common Stock - Issued and Outstanding 27,677,372 at June 30, 2022 (unaudited) and 28,206,566 at December 31, 2021		277		282
Additional Paid-In Capital		96,689		104,123
Retained Earnings		222,464		199,347
Accumulated Other Comprehensive Income (Loss)		(11,061)		9,006
Total Shareholders' Equity		374,883		379,272
Total Liabilities and Equity	$	3,883,264	$	3,477,659

See accompanying notes to consolidated financial statements.

3

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Statements of Income

(dollars in thousands, except per share data)

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
	2022		2021		2022		2021
INTEREST INCOME
Loans, Including Fees	$	34,358	$	28,748	$	66,102	$	56,656
Investment Securities		3,325		2,312		6,195		4,732
Other		99		87		179		199
Total Interest Income		37,782		31,147		72,476		61,587
INTEREST EXPENSE
Deposits		3,456		3,513		6,614		7,184
Notes Payable		—		—		—		61
FHLB Advances		167		228		317		456
Subordinated Debentures		1,219		1,112		2,416		2,197
Federal Funds Purchased		410		6		419		6
Total Interest Expense		5,252		4,859		9,766		9,904
NET INTEREST INCOME		32,530		26,288		62,710		51,683
Provision for Loan Losses		3,025		1,600		4,700		2,700
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		29,505		24,688		58,010		48,983
NONINTEREST INCOME
Customer Service Fees		298		231		579		465
Net Gain on Sales of Available for Sale Securities		52		702		52		702
Other Income		1,300		670		2,576		1,444
Total Noninterest Income		1,650		1,603		3,207		2,611
NONINTEREST EXPENSE
Salaries and Employee Benefits		8,977		7,512		17,671		14,614
Occupancy and Equipment		1,042		980		2,127		2,035
Other Expense		3,733		2,985		7,462		5,751
Total Noninterest Expense		13,752		11,477		27,260		22,400
INCOME BEFORE INCOME TAXES		17,403		14,814		33,957		29,194
Provision for Income Taxes		4,521		3,821		8,813		7,530
NET INCOME		12,882		10,993		25,144		21,664
Preferred Stock Dividends		(1,014)		—		(2,027)		—
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS	$	11,868	$	10,993	$	23,117	$	21,664
EARNINGS PER SHARE
Basic	$	0.43	$	0.39	$	0.83	$	0.77
Diluted		0.41		0.38		0.80		0.75

See accompanying notes to consolidated financial statements.

4

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(dollars in thousands)

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Net Income	$	12,882	$	10,993	$	25,144	$	21,664
Other Comprehensive Income (Loss):
Unrealized Gains (Losses) on Available for Sale Securities		(15,402)		2,866		(38,414)		350
Unrealized Gains (Losses) on Cash Flow Hedges		4,363		(2,551)		13,392		3,054
Reclassification Adjustment for (Gains) Losses Realized in Income		207		(357)		630		(29)
Income Tax Impact		1,478		(17)		4,325		(712)
Total Other Comprehensive Income (Loss), Net of Tax		(9,354)		(59)		(20,067)		2,663
Comprehensive Income	$	3,528	$	10,934	$	5,077	$	24,327

See accompanying notes to consolidated financial statements.

5

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Statements of Shareholders’ Equity

Three and Six Months Ended June 30, 2022 and 2021

(dollars in thousands, except share data)

(Unaudited)

										Accumulated
						Additional				Other
	Preferred		Common Stock			Paid-In		Retained		Comprehensive
Three Months Ended	Stock		Shares	Amount		Capital		Earnings		Income (Loss)		Total
BALANCE March 31, 2021	$	—	28,132,929	$	281	$	104,087	$	165,502	$	9,301	$	279,171
Stock-based Compensation		—	4,848		—		583		—		—		583
Comprehensive Income (Loss)		—	—		—		—		10,993		(59)		10,934
Stock Options Exercised		—	25,000		1		141		—		—		142
BALANCE June 30, 2021	$	—	28,162,777	$	282	$	104,811	$	176,495	$	9,242	$	290,830
BALANCE March 31, 2022	$	66,514	28,150,389	$	282	$	103,756	$	210,596	$	(1,707)	$	379,441
Stock-based Compensation		—	5,000		—		850		—		—		850
Comprehensive Income (Loss)		—	—		—		—		12,882		(9,354)		3,528
Stock Options Exercised		—	14,750		—		44		—		—		44
Stock Repurchases		—	(492,417)		(5)		(7,954)		—		—		(7,959)
Issuance of Restricted Stock Awards		—	—		—		—		—		—		—
Forfeiture of Restricted Stock Awards		—	(600)		—		(2)		—		—		(2)
Vested Restricted Stock Units		—	600		—		—		—		—		—
Restricted Shares Withheld for Taxes		—	(350)		—		(5)		—		—		(5)
Preferred Stock Dividend		—	—		—		—		(1,014)		—		(1,014)
BALANCE June 30, 2022	$	66,514	27,677,372	$	277	$	96,689	$	222,464	$	(11,061)	$	374,883
										Accumulated
						Additional				Other
	Preferred		Common Stock			Paid-In		Retained		Comprehensive
Six Months Ended	Stock		Shares	Amount		Capital		Earnings		Income (Loss)		Total
BALANCE December 31, 2020	$	—	28,143,493	$	281	$	103,714	$	154,831	$	6,579	$	265,405
Stock-based Compensation		—	9,856		—		1,157		—		—		1,157
Comprehensive Income		—	—		—		—		21,664		2,663		24,327
Stock Options Exercised		—	26,400		1		153		—		—		154
Stock Repurchases		—	(16,618)		—		(208)		—		—		(208)
Restricted Shares Withheld for Taxes		—	(354)		—		(5)		—		—		(5)
BALANCE June 30, 2021	$	—	28,162,777	$	282	$	104,811	$	176,495	$	9,242	$	290,830
BALANCE December 31, 2021	$	66,514	28,206,566	$	282	$	104,123	$	199,347	$	9,006	$	379,272
Stock-based Compensation		—	9,656		—		1,681		—		—		1,681
Comprehensive Income (Loss)		—	—		—		—		25,144		(20,067)		5,077
Stock Options Exercised		—	24,750		—		65		—		—		65
Stock Repurchases		—	(563,455)		(5)		(9,157)		—		—		(9,162)
Forfeiture of Restricted Stock Awards		—	(1,000)		—		(3)		—		—		(3)
Vested Restricted Stock Units		—	2,100		—		—		—		—		—
Restricted Shares Withheld for Taxes		—	(1,245)		—		(20)		—		—		(20)
Preferred Stock Dividend		—	—		—		—		(2,027)		—		(2,027)
BALANCE June 30, 2022	$	66,514	27,677,372	$	277	$	96,689	$	222,464	$	(11,061)	$	374,883

See accompanying notes to consolidated financial statements.

6

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(dollars in thousands)

(Unaudited)

	Six Months Ended
	June 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	25,144	$	21,664
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Net Amortization on Securities Available for Sale		1,333		1,755
Net Gain on Sales of Securities Available for Sale		(52)		(702)
Provision for Loan Losses		4,700		2,700
Depreciation of Premises and Equipment		1,260		1,146
Amortization of Other Intangible Assets		96		96
Amortization of Subordinated Debt Issuance Costs		220		174
Stock-based Compensation		1,681		1,157
Changes in Operating Assets and Liabilities:
Accrued Interest Receivable and Other Assets		(4,944)		(4,870)
Accrued Interest Payable and Other Liabilities		41,788		4,810
Net Cash Provided by Operating Activities		71,226		27,930
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in Bank-Owned Certificates of Deposit		738		492
Proceeds from Sales of Securities Available for Sale		25,066		7,757
Proceeds from Maturities, Paydowns, Payups and Calls of Securities Available for Sale		18,986		18,023
Purchases of Securities Available for Sale		(118,282)		(39,341)
Net Increase in Loans		(406,421)		(265,409)
Net Increase in FHLB Stock		(4,679)		(805)
Purchases of Premises and Equipment		(1,159)		(336)
Purchase of Bank-Owned Life Insurance		—		(25,000)
Net Cash Used in Investing Activities		(485,751)		(304,619)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits		255,716		219,270
Net Increase in Federal Funds Purchased		86,000		—
Principal Payments on Notes Payable		—		(11,000)
Proceeds from FHLB Advances		14,000		—
Preferred Stock Dividends Paid		(2,027)		—
Stock Options Exercised		65		154
Stock Repurchases		(9,162)		(208)
Forfeiture of Restricted Stock Awards		(3)		—
Shares Repurchased for Tax Withholdings Upon Vesting of Restricted Stock-Based Awards		(20)		(5)
Net Cash Provided by Financing Activities		344,569		208,211
NET CHANGE IN CASH AND CASH EQUIVALENTS		(69,956)		(68,478)
Cash and Cash Equivalents Beginning		143,473		160,675
Cash and Cash Equivalents Ending	$	73,517	$	92,197
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash Paid for Interest	$	9,562	$	8,691
Cash Paid for Income Taxes		7,955		10,438
Net Investment Securities Purchased but Not Settled		8,738		—

See accompanying notes to consolidated financial statements.

7

Bridgewater Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note 1: Description of the Business and Summary of Significant Accounting Policies

Organization

Bridgewater Bancshares, Inc. (the “Company”) is a financial holding company whose operations consist of the ownership of its wholly-owned subsidiaries, Bridgewater Bank (the “Bank”) and Bridgewater Risk Management, Inc. The Bank commenced operations in 2005 and provides retail and commercial loan and deposit services, principally to customers within the Minneapolis-St. Paul-Bloomington, MN-WI Metropolitan Statistical Area. In 2008, the Bank formed BWB Holdings, LLC, a wholly owned subsidiary of the Bank, for the purpose of holding repossessed property. In 2018, the Bank formed Bridgewater Investment Management, Inc., a wholly owned subsidiary of the Bank, for the purpose of holding certain municipal securities and to engage in municipal lending activities.

Bridgewater Risk Management, Inc. was incorporated in December 2016 as a wholly owned insurance company. It insures the Company and its subsidiaries against certain risks unique to the operations of the Company and for which insurance may not be currently available or economically feasible in today’s insurance marketplace. Bridgewater Risk Management pools resources with several other insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves.

Basis of Presentation

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of the consolidated balance sheets, consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of shareholders’ equity and consolidated statements of cash flows in conformity with U.S. generally accepted accounting principles (“GAAP”). However, all normal recurring adjustments which are, in the opinion of management, necessary for the fair presentation of the interim financial statements have been included. The results of operations for the three and six-month periods ended June 30, 2022 are not necessarily indicative of the results which may be expected for the entire year. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 8, 2022.

Principles of Consolidation

These consolidated financial statements include the amounts of the Company, the Bank, with locations in Bloomington, Greenwood, Minneapolis (2), St. Louis Park, Orono, and St. Paul, Minnesota, BWB Holdings, LLC, Bridgewater Investment Management, Inc., and Bridgewater Risk Management, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates in Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Information available which could affect judgements includes, but is not limited to, changes in interest rates, changes in the performance of the economy, including rising inflation and ongoing COVID-19 pandemic related changes, and changes in the financial condition of borrowers.

8

Material estimates that are particularly susceptible to significant change in the near term include the determination of the allowance for loan losses, calculation of deferred tax assets, fair value of financial instruments, and investment securities impairment.

Emerging Growth Company

The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, even if the Company complies with the greater obligations of public companies that are not emerging growth companies, the Company may avail itself of the reduced requirements applicable to emerging growth companies from time to time in the future, so long as the Company is an emerging growth company. The Company will continue to be an emerging growth company until the earliest to occur of: (1) the end of the fiscal year following the fifth anniversary of the date of the first sale of common equity securities under the Company’s Registration Statement on Form S-1, which was declared effective by the SEC on March 13, 2018; (2) the last day of the fiscal year in which the Company has $1.07 billion or more in annual revenues; (3) the date on which the Company is deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”); or (4) the date on which the Company has, during the previous three-year period, issued publicly or privately, more than $1.0 billion in non-convertible debt securities.

Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 for complying with new or revised accounting standards. As an emerging growth company, the Company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company elected to take advantage of the benefits of this extended transition period.

Impact of Recently Issued Accounting Guidance

In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This ASU updates guidance in Topic 326 to eliminate the accounting guidance for TDRs by creditors in Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. Additionally, the amendments to ASC 326 require that an entity disclose current period gross write offs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivables by year of origination. ASU 2022-02 is effective for fiscal years beginning after December 15, 2022 for companies that have adopted CECL, including interim periods within those fiscal years, with early adoption permitted.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (modified by ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments Credit Losses, ASU 2019-05, Financial Instruments Credit Losses – Targeted Transition Relief, and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses). The amendments in this ASU affect all entities that measure credit losses on financial instruments including loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables, and any other financial asset that has a contractual right to receive cash that is not specifically excluded. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this ASU replace the incurred loss impairment methodology required in current GAAP with a methodology that reflects expected credit losses that requires consideration of a broader range of reasonable and supportable information to estimate credit losses. The amendments in this ASU will affect entities to

9

varying degrees depending on the credit quality of the assets held by the entity, the duration of the assets held, and how the entity applies the current incurred loss methodology. In November 2019, the FASB issued ASU 2019-10, Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging (815), and Leases (Topic 842) – Effective Dates. This ASU amended the effective date of ASU 2016-13 for smaller reporting companies and non-SEC reporting entities. The amendment delays the effective date to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. As an emerging growth company, the Company is required to implement by January 1, 2023 and is currently evaluating the impact on its consolidated financial statements. Amendments should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. The Company has contracted with a third party to develop a model to comply with CECL requirements. The Company has established a steering committee with representation from various departments across the enterprise. While the Company has not finalized the impact of implementing CECL, the Company expects to recognize a one-time cumulative effect adjustment to the allowance and beginning retained earnings upon adoption. The future impact of CECL on the Company’s allowance for credit losses and provision expense subsequent to initial adoption will depend on changes in the loan portfolio, economic conditions and refinements to key assumptions including forecasting and qualitative factors.

Subsequent Events

Subsequent events have been evaluated through August 4, 2022, which is the date the consolidated financial statements were available to be issued.

Note 2: Earnings Per Share

Basic earnings per common share are computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per common share are computed by dividing net income by the weighted average number of common shares adjusted for the dilutive effect of stock compensation. For the three and six months ended June 30, 2022, stock options, restricted stock awards and restricted stock units of approximately 332,200 and 300,500 shares, respectively, were excluded from the calculation because they were deemed to be anti-dilutive. For the three and six months ended June 30, 2021, stock options, restricted stock awards and restricted stock units of approximately 23,000 and 56,000 shares, respectively, were excluded from the calculation because their effect would have been anti-dilutive.

The following table presents the numerators and denominators for basic and diluted earnings per share computations for the three and six months ended June 30, 2022 and 2021:

Three Months Ended